Planning for retirement helps to avoid screwing up the long and happy years to come. Here’s what a financial advisor wants to tell you to avoid common budgeting mistakes.
1. Failing to plan for retirement
Many people happily head into retirement without worrying too much about how they will manage financially when the time comes. It’s worrying that some consult a financial expert only after retirement. Financial advisor Scott Hanson, co-founder and principal partner of Hanson McClain Advisers, talks about one of the most common mistakes: “People really don’t plan enough for their retirement. It’s incredible: many come to see us organize their retirement… after having taken it.”
Planning ahead makes the process much easier, but if you’re about to retire without preparing for it, don’t despair.
“It’s never too late, continues Scott Hanson. I’ve seen people in their mid-50s who had almost no money set aside for retirement and who, by getting serious about it, ended up being financially healthy before they hit 65. .”
2. Procrastinating when planning for retirement
Many people really want to plan for retirement, but they keep putting off making a plan. Several reasons can explain this. “A lot of people are intimidated by financial matters,” reports Scott Hanson. And they may not understand them so well either. They are a little embarrassed to speak with an advisor or they are simply afraid of speaking to the wrong advisor and being sold something.
But procrastinating on your retirement planning is a mistake. “Hiding your head in the sand and waiting another year to deal with it won’t make it any easier,” warns Scott Hanson. “What matters is planning now.”
3. Retire early
Some people decide to retire early without checking whether they have enough assets to ensure a comfortable life. It’s important to understand your situation before rushing into retirement – a few more years of work contributing to a pension fund or saving could see you reap the rewards in the years to come. But many people suddenly decide that they need to retire early. “In the United States, approximately one in two people retire sooner than expected, whether due to a health problem or a job change,” explains Scott Hanson. They suddenly see themselves forced into it without having had much time to plan.” But if the worst should happen, Scott Hanson advises taking a step back,
4. Rely on a company pension fund or social security
Another common budget mistake is over-reliance on a company pension fund or Social Security to help you live well in retirement. A simple glance at your probable expenses will show that such an amount will not be enough to make you live without worries.
Having to worry about financial matters can not only hurt your spirits but lead to health problems and depression.
5. Not saving enough
The Federal Reserve’s report on the economic well-being of American households in 2016 found that 28% of non-retired adults had no savings to prepare for retirement. And about half of the population felt uncertain about their ability to manage their money in retirement.
The average amount people had saved for retirement was $60,000, which is insufficient to live comfortably for 20 years or more. Before determining how much money you will need to save before you can retire comfortably, you need to have a clear idea of your current and future expenses.
6. Underestimating living expenses
People tend to think they’ll spend less when they retire, and it’s true that some expenses – travel costs for example – will actually go down. Other expenses, on the other hand, could increase. For example, you might want to spend more money on leisure activities like eating out with friends or traveling more. Your heating bills can go up if you stay home all day rather than spending your working hours in your employer’s heated offices.
It is generally estimated that your retirement budget should represent 80% of your current expenses. And remember that because of inflation, your budget won’t support you for as many years as it does today.
7. Financial support for adult children
“Honestly, that’s a big mistake,” says Scott Hanson. And he is not wrong. In July 2014, a staggering one in three households had adults financially supported by their parents. About 40% helped them with their travel expenses and 57% with current bills. More than a third of millennials received regular financial support from their parents, and one in five still lived with their parents without contributing to the family budget. Scott Hanson believes that people “sometimes sabotage their retirement by giving money to their children. It becomes a bottomless pit. Supporting your children financially could end up ruining your retirement.
8. Splurge at the start of retirement
It’s tempting. When you suddenly have a large amount of money at your disposal and you’ve worked hard all your life, it’s understandable to want to splurge on a world cruise or a golf club membership.
But unless they are planned, these kinds of expenses could cause you to experience all kinds of financial difficulties. “Often people spend too much at the start of their retirement, explains Scott Hanson. Retirement means a lot of free time, and sometimes we see people throwing their money out the window.” Watching your expenses will ensure you have a much more comfortable retirement.
9. Make an expensive move
Sometimes it’s wise to move in retirement – perhaps you want to be closer to your children or elderly parents. There can sometimes also be financial reasons that justify it.
“For some people, the decision to move in retirement may make sense if their house is worth a million dollars and they can buy a comparable residence for $300,000 a few hours away,” explains Scott Hanson. For these people, especially if they don’t have a lot of assets, it can be a great way to help fund their retirement budget. He does, however, offer this advice: “We recommend people rent somewhere before they buy because we’ve seen many people move in thinking they’d like to live in a retirement neighborhood or in the middle of the woods and find themselves eventually realize that they don’t like it.”
With the increase in house prices, you may find that you can no longer afford one if you are looking to move back to where you were before and you will also have to pay all the moving costs. once again. Always do your research before moving to a new area to fully understand what to expect.
9. Underestimating medical costs
Medical costs are likely to increase with age. “Medical expenses are a big issue in retirement,” says Scott Hanson. Many people ignore dentist bills, for example. “Let’s be real: our teeth don’t necessarily last our entire lives. And most medical insurance coverage doesn’t include dental care, he adds. People could thus spend $10,000 or $20,000 that they had not put aside. Dental care seems to be a bigger issue than medical costs for the majority of people we have dealt with.”
10. Avoiding long-term investments
When people retire, most of the time they start to avoid making long-term investments because they don’t realize that they still have maybe 20 or 25 years of life left to invest. “I believe that at the start of their retirement, people have to realize that their life expectancy is much longer,” says Scott Hanson. In the case of a person retiring at age 60, there is a good chance that they will live well beyond their 80s. So while some of their money must be saved for current expenses, that person must also continue to make long-term investments that will pay off well over long periods of time.”